There is a bubble in the tech industry, but it has nothing to do with the behavior of venture capital, as so many people are discussing. There’s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand what’s really happening to the economics of media.

There is a bubble in media, and if it pops before we can get our arms around it, any hope for finding profitable business models may be lost.

To be fair, their are some seeds of understanding in all the talk about VCs:

Chris Anderson kicked this off by pointing out that technology adoption is still increasing rapidly and that, with expensive networks already built, it’s much cheaper to build software to capitalize on them — this is precisely why there is a bubble.

Dave Winer thinks that users should control the investment capital, and he’s right that the users are the only ones right now who understand what they need.

Scoble thinks that people should be chasing “Venture Users why it’s turning into a bubble.

Fred Wilson predicted a “Looming Attention Crisis” several months ago, and it’s no surprise that he referenced Umair Haque.

If you really want to understand why there’s a bubble, you have to invest the time in reading Umair Haque’s theory of media economics — Umair is possibly the most brilliant mind looking at what’s going in media, and thus in technology. I invested a few hours in wading through Umair’s slide deck on media economics and I was stunned — it’s all right there. Because Umair understands all the nuances, he’s hard to read and hard to digest, but, man, does he get it.

I’m going to attempt now a high-risk endeavor — I’m going to recast Umair’s argument and add a few nuances:

When there were only a handful of content choices, there was plenty of attention to go around — and attention could be bought through marketing.

When there were only a handful of distribution channels, and the cost of entry was high, a handful of players could profitably compete for a slice of the attention pie.

Digital and network technology has lead to an explosion of content and distribution channels, i.e. a proliferation of media.

The proliferation of media is destoying the economics of Old Media, which depended on a finite media universe.

The proliferation of media is a bubble because it’s being driven by speculation — the 20 million bloggers and dozens of Web 2.0 sites popping up everyday are speculating on the unbundling of content and distribution.

As a result of the speculation in media, there is now too much media competing for too little attention.

The negative economic consequence is that attention is not being allocated efficiently — it’s becoming increasing difficult for people to figure out which of the infinite number of content choices at their fingertips are most worth their time.

The economics of media — which are the new economics of technology — depend on the efficient allocation of attention.

When the cognitive dissonance of too much media choice becomes too great, individual media behavior, i.e. the allocation of attention, will become chaotic and haphazard. When this happens (and it already has), no one is going to be able to build a profitable business model because the two types of media dollars — advertising and content fees — won’t be able to flow efficiently.

The speculation in media that is being driven by the technology industry and blogging is still based on old media economics — it assumes that each site can gather a sufficiently large slice of the attention pie to finance its existence. But if media attention becomes completely fragmented and chaotic, no one will have sufficient scale or a sufficiently coherent audience to capitalize on their investment in media creation — even if the only real cost is time.

If all of the advertising dollars pass through Google, the only one who will be left with a meaningful share of those dollars will be Google. Same with content fees.

The idea that we’re living in an “attention economy” is nothing new. But unless the media/technology industry starts listening to Umair and focuses on creating new ways to help people efficiently allocate their attention in a world of infinite options, the bubble will pop. And it won’t be pretty.

So let’s focus on the user. What the user needs is help allocating a finite amount of attention. And the solution needs to be personal — perfectly tailored to each user’s needs. The user needs a personal killer app.

It will be a huge challenge to realize Umair’s vision of “snowball economics” through the creation of “reconstructors” that thrive off of “microplatforms” and “smart aggregators.” (If you’re not familiar with Umair’s lexicon, I suggest you invest the time to learn it.)

Good thing we’ve got a open network and an infinite supply of cheap development bandwidth.

UPDATE: When the Edge Becomes the Center

Skepticism of the media bubble argument rightly focuses on the question of whether the average person is (or soon will be) suffering from the ill effects of information overload. Paul Kedrosky’s response to this post highlighted the key issue — are those of us who complain of media overload really just “edge cases,” i.e. most people have better things to do than subscribe to 1,000 RSS feeds?

Paul Montgomery captures this view in his comment below:

the majority of people WANT blockbusters. It may seem to media economists that everyone should have a highly sophisticated strategy for consuming media in reconstituted microchunks through smart aggregators, just as they do, but a significant portion of the populace may not want to invest a lot of their precious time figuring out this Media 2.0 environment and will instead stick to a few trusted sources.

My wife is not a geek. She doesn’t blog and she doesn’t use an RSS reader. I don’t know if that makes her ‘average’, but hey. Anyway, she is interested in things. She does use the internet to find news stories of interest to her – celebrity news (oh well and info related to her profession. When I asked where she goes to get her news, she mentioned six or seven sites she visits for about an hour in total throughout the day, each day. And she has to ‘find’ the stories each time. So I’d say she is the perfect example of someone who would benefit from having a service that would bring her the news that matches her interests, regardless of who generated it.

I’m with Alex on this — Paul and Paul are right that most of us having this conversation are operating at the vanguard, but I think there is a wave (even a tsunami) following us. To understand why, we need to look beyond blogs vs. newspapers (i.e. text media) at the most mainstream media of all: video.

Google, Apple, BitTorrent, and others on the technology vanguard are doing to video media, i.e. TV and movies, what blogs are doing to newspapers. The day is not far off when you can watch any TV show or movie, both studio-created and consumer-created, at the touch of button (and in the palm of your hand). This will make digital video recorders and 1,000 cable channels look like minor issues

When you can watch any video content ever created any time you want, what are you going to do when you plop down on the couch to veg? What happens to the economics of media when there are 100 million Americans “watching TV” in the evening, but they’re each watching different shows?

When we reach this point, the center will suffer the same cognitive overload malady as those of us at the edge. It may be true that most people want blockbusters, but what if Umair is right and it will soon be economically impossible to produce blockbusters in the traditional sense?

In a world of infinite choice, who will be the new “trusted sources” that Paul refers to? Can the notion of trusted media brands survive the chaos?

That (I’ve said it before and I’ll say it again) is the “next Google” question.

Comments (68 Responses so far)

We the Media Edge Cases Scott Karp nails it (mostly) in an insight piece on why the real bubble 2.0 is in media. As he argues, the tech industry is, for at least the third time in the last decade, fancying itself as being in the media industry, except its participants know no more this time than last times

Scott Karp , distilling the writings of Umair Haque on media (“Umair is possibly the most brilliant mind looking at whatÃ¢â‚¬â„¢s going in media, and thus in technology”): “There is a bubble in the tech industry, but it has nothing to do with the behavior of venture

amazing presentation on the economics of Media 2.0 . IÃ¢â‚¬â„¢ve only just started trying to absorb it, but already IÃ¢â‚¬â„¢m hooked. It deals in pretty plain terms with the fundamental matters of production and attention, and has some fascinating ideas about how attention is mediated by media in a networked

in capital letters. The solution that folks are stretching for is either one or the other. On the one hand you have Scott Karp suggesting that we need Ã¢â‚¬Å“trusted sourcesÃ¢â‚¬Â and wonders whether media Ã¢â‚¬Å“brandsÃ¢â‚¬Â can Ã¢â‚¬Å“survive the chaosÃ¢â‚¬Â: Ã¢â‚¬Å“So letÃ¢â‚¬â„¢s focus on the user. What the user

new ?trusted sources? that Paul refers to? Can the notion of trusted media brands survive the chaos?” –Scott Karp, Publishing 2.0, There is a bubble in media Susan says: The talk about attention, personal media and new tools is dead on–but we’re making BIG assumptions about how users

to top | permanent link to this entry | 2 comments Collaborative News, and the Bubble Jan 31 2006, 13:53 There’s an interesting discussion on Publishing 2.0 about how the new internet bubble will be brought about by the proliferation of community-created media, because the sheer volume of

doesn’t stem from the strength of the programmer community. It stems from the weakness of that community.” Feeling Lucky? found: 03:40pm January 30, 2006 The Google pile-on continues. This is what happens when you say you’re “not evil”. A Bubble in Media found: 02:17pm January 30, 2006 “As a result of the speculation in media, there is now too much media competing for too little attention. The negative economic consequence is that attention is not being allocated efficiently.

2.0 ] – Web, Publishing, Media. [Top notch article!] Since I work in a small cash strapped company, the “VC” always looms over us. Should we look for venture funding, trade freedom to set policy over having liquid capital? [

Digital Convergence creates confusion about the future of media; many smart people are trying to grasp what’s changed, and what those changes mean. Scott Karp at Publishing 2.0aggregates the thinking of several “2.x” usual suspects, and finds some of the best insights in Umair Haque’s theory of media economics (link to PowerPoint).The idea that weÃƒÂ¢Ã‚â‚¬Ã‚â„¢re living in an ÃƒÂ¢Ã‚â‚¬Ã‚Å“attention economyÃƒÂ¢Ã‚â‚¬Ã‚Â is nothing new. But unless the media/technology

You may have heard that the renewed excitement about Internet ventures is a renewed bubble, ala 1999. But over onPublishing 2.0, they contend that Ã¢â‚¬Å“thereÃ¢â‚¬â„¢s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand whatÃ¢â‚¬â„¢s really happening to the economics of media. There is a bubble in media, and if it

Ã¢â‚¬â€ depend on the efficient allocation of attention…’ Yeah, this is right. At times I am too confused to watch a particular TV channel. I think too many channels has created too much confusion. To know more about the economics of new media, click here and here also.

s focus on the user. What the user needs is help allocating a finite amount of attention. And the solution needs to be personal Ã¢â‚¬â€¢ perfectly tailored to each userÃ¢â‚¬â„¢s needs. The user needs a personal killer app. Bubble 2.0 Is a Bubble in Media – Publishing 2.0 Ã£ÂÂ¾Ã£ÂÂÃ§Â¢ÂºÃ£Ââ€¹Ã£ÂÂ«Ã£ÂÂÃ£â€šâ€œÃ£ÂÂªÃ£â€šâ€šÃ£ÂÂ®Ã£ÂÅ’Ã£Ââ€šÃ£â€šÅ’Ã£ÂÂ°Killer

[...] scott karp over at Publishing 2.0 does a rundown on theÃ‚Â media bubble and give major props to Umair over at Bubble Generation and his power point presentation on Media Economics. It is a must read for everyone with an economic interest in new media. [...]

The word “attention” is being misused a lot these days. Umair uses it extensively as a synonym for “marketing” in that PowerPoint.

Another thing that is being misused is the old chestnut about there being too much information in the world for any one person to take. I was hearing that one 25 years ago. BOOO-ring.

Having said that, once you wade through all the graphs Umair does start making some novel points in his slide show, even if he does use neologisms where old words would suffice. Overall, I’d give it a 37, but I couldn’t dance to it.

Paul — Wow, I’ve heard a lot of “dismiss it out of hand” arguments, but saying that the difference between information overload today and that of 25 years ago only makes you yawn — that really takes the cake. I’ll be very curious to see how many takers you get on that one.

I think “attention” is exactly the right word. The difference between now and 25 years ago is that the geometric growth in media has fragmented attention to the point where its getting increasingly difficult to make money from it. Sure, there was info overload 25 years ago, but there were still sufficiently few choices that the economics worked.

I agree that Umair does some funky things with words — but his analysis is spot on. Can you address the substance of his analysis other than by quibbling with his terms?

Look at it this way, Scott. 25 years ago there was already too much information in the mass media for one person to consume in completion. The main barrier for choice back then which has been solved now is distribution, but the same thing applied to the first Internet boom and there weren’t distribution problems then either, so that’s obviously not the central issue.

The central flaw in Umair’s analysis is that maybe the majority of people WANT blockbusters. It may seem to media economists that everyone should have a highly sophisticated strategy for consuming media in reconstituted microchunks through smart aggregators, just as they do, but a significant portion of the populace may not want to invest a lot of their precious time figuring out this Media 2.0 environment and will instead stick to a few trusted sources. Those sources may change over time, and the Media 2.0 phase may just be a repositioning of who owns the hit channels – or what channels the usual owners change to.

Related to that flaw is the distinct possibility that the supply side is in a temporary state of innovation, which will be snuffed out because the small startups have no way to gain easy IPO-level scale to compete with GEMAYA since Sarbanes-Oxley, and thus all th eplayers will either get bought out or out-executed. That’s most likely going to be the way it happens, if it happens.

I’m not saying that that is definitely how it’s going to be, but it’s got as much if not more of a chance to be the real future as Umair’s vision, mainly because inertia is on its side. As 3D was wont to say: inertia creeps, moving up slowly. (Sorry for the lyricism, I have a bad head cold and brain fuzzy no worky worky.)

[...] This article—which I want to get out of the way first—details the tech industries modern problem in economics. Publishing 2.0 has lots of stuff like this. I don’t want to comment too much on this, just thought it was worth seeing. Anyway [...]

Yes, people want blockbusters. Shared references, a common topic to chat about at the job. And there will be:

1) As information overload increases and you can watch any show at any time, broadcasts in real-time will seem more unique and therefore higher valued.

2) There will always be hypes, both because of lazyness and because of eagerness to know what’s cool. Even if file sharers of today can choose between millions of songs, some turn out to be enormously popular and some are hardly recognized.

Of course there will also be a wild variations in media consumption, but the one thing doesn’t exclude the other.

[...] One thing Denton probably wasn’t doing during his blog hiatus was discussing Bubble 2.0. Which makes him the only male blogger over 30 who wasn’t. Tangential metatheory–the Bubble on the Bubble talk may burst during 2006. Stay tuned. [...]

Your argument is flawed in that it only represents a personal epiphany. It is true that attention is the scarce resource in the new media economy, but this doesn’t mean that attention will become chaotic and haphazard, it just means that winners will be about managing the overabundance of content.

Anonymous, IF the bubble pops it will be because no one figures out how to “manage the overabundance of content,” leading to “chaotic and haphazard” consumption. I can’t quantify how big the risk is, but it’s there. I’m hoping we’ll dodge the bullet — this is a call to action.

You’re right, I did have a personal epiphany — many others on the “edge” are having the same epiphany. There key issue, as I explained in the update above, is whether the virus will spread to the center.

Joakim, good point about the popularity of some music — but the iTunes revolution is still in its early stages — it still sells the same albums that line the shelves of Walmart. Time will tell whether blockbusters in music remain tenable — Jon Fine has some interesting thoughts on this.

The companies that ‘win’ won’t be making you make all kinds of choices about your content consumption. All of that will happen behind the scenes, and you’ll visit those sites/channels/whatever precisely because they deliver what you want, how you want it, WITHOUT much work on your side at all.

[...] Digital Convergence creates confusion about the future of media; many smart people are trying to grasp what’s changed, and what those changes mean. Scott Karp at Publishing 2.0 aggregates the thinking of several “2.x” usual suspects, and finds some of the best insights in Umair Haque’s theory of media economics (link to PowerPoint).The idea that we’re living in an “attention economy” is nothing new. But unless the media/technology industry starts listening to Umair and focuses on creating new ways to help people efficiently allocate their attention in a world of infinite options, the bubble will pop. And it won’t be pretty.So let’s focus on the user. What the user needs is help allocating a finite amount of attention. And the solution needs to be personal — perfectly tailored to each user’s needs. The user needs a personal killer app. [...]

Our ‘attention’ will be guided more and more from ‘trusted sources’. With choices for media consumption increasing daily, “director” sites like slashdot and digg will keep creating the “herd effect” which will drive most end users to content that appeals to them – whether that content be text, audio, video or PowerPoints. In today’s parlance, imagine a TV channel that features review-references to current shows and people are driven to channel 137 to view what is recommended. Now throw it into IP: highly recommended videos from unknowns (and previous knowns) get heavy paid-per-show traffic based on herd-recommendation AND user appetite. Trusted “Director” sites may have 100 recommendations but I may choose only 2 or 3. The cream will always rise to the top in time.

I agree with all this (below) except the claim that “no one is going to be able to build a profitable business model.” There will be profit, just less of it, and that’s certainly what scares–or should scare–the larger media outlets.

When the cognitive dissonance of too much media choice becomes too great, individual media behavior, i.e. the allocation of attention, will become chaotic and haphazard. When this happens (and it already has), no one is going to be able to build a profitable business model because the two types of media dollars Ã¢â‚¬â€ advertising and content fees Ã¢â‚¬â€ wonÃ¢â‚¬â„¢t be able to flow efficiently.

[...] What sort of financial model will work for this kind of media? No-one knows yet where the billions of dollars of advertising revenue for minor-site ads will end up, though Google looks likely to cream off much of the loot. There’s a good round-up of current thinking from Scott Karp over at Publishing 2.0. [...]

[...] Scott Karp this week initiated another interesting meme, this time on media economics, basing a post on the work of Mr Plastic Fantastic himself, Umair Haque. Karp called Haque “possibly the most brilliant mind looking at whatÃ¢â‚¬â„¢s going in media, and thus in technology”. Maybe he is, maybe he isn’t but Umair is certainly the dude most capable of extrapolating the most graphs and buzzwords per theorum. Undisputed. [...]

Umair certainly has a pedagogical point in separating between blockbusters and snowballs, but of course in reality the line isn’t clear. The big corporations will continue selling big hits for big money, even though competition grows tougher. What they loose by reduced prizes they will win back by smaller costs in production and distribution.

What they do need is to adopt more snowball-like strategies. Such as influencing high status people so that the product gets popular among the rest, or being really good at making predictions of when is the right time for a subculture trend to “gentrificate” and meet the masses.

[...] Bubble 2.0 Is a Bubble in Media – There is a bubble in the tech industry, but it has nothing to do with the behavior of venture capital, as so many people are discussing. ThereÃ¢â‚¬â„¢s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand whatÃ¢â‚¬â„¢s really happening to the economics of media. [...]

[...] Carl Howe (Blackfriars Communications) submits: Slate’s Jack Shafer chimed in over the weekend with a vision of how blogs and democratic publishing are eroding the business value of newspapers. He likens the rise of blogs to the introduction of phototypesetting, which undermined the unions and eliminated thousands of linotype operator jobs. He argues, rightly I think, that traditional news organizations need to differentiate their news reporting or fall prey to the onslaught of the army of bloggers. So that’s two pundits in one weekend (three if you include me) who are predicting the decline and fall of today’s news business. [...]

[...] You may have heard that the renewed excitement about Internet ventures is a renewed bubble, ala 1999. But over on Publishing 2.0, they contend that “there’s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand what’s really happening to the economics of media. There is a bubble in media, and if it pops before we can get our arms around it, any hope for finding profitable business models may be lost.” It’s an interesting read about the business of publishing in the digital age. Tags [...]

[...] Joshua Porter says that the holy grail of web applications is knowing what users want and giving it to them. Riffing on a New York Times article and commentary from Scott Karp, he says that Netflix has it figured out: So, what is the Ã¢â‚¬Å“personal killer appÃ¢â‚¬Â that Karp is looking for? ItÃ¢â‚¬â„¢s recommendation systems, just like Netflix. TheyÃ¢â‚¬â„¢re out modeling where YOU pay attention, what media YOU want, not the media THEY try to sell you. So the question is not Ã¢â‚¬Å“how can Media surviveÃ¢â‚¬Â or Ã¢â‚¬Å“how will people change?Ã¢â‚¬Â. [...]

Plus ca change… A little historical perspective is definitely required before this goes over the edge… It was only 80 years ago that shared experience came into existence… with radio… It is the shared experience and the blockbuster that are the novelty, the anomaly and the exception. It reached its peak in the 1950s with television, when toilets all over the country flushed at the same time – when the commercial break came in I Love Lucy. Since then the media have proliferated, exploded and expanded, with FM radio, cable TV, pay per view, on demand, internet, file sharing… ad infinitum, if not ad nauseam.

What we are witnessing is simply the pendulum swinging. It is a continuum, not a bubble. Everyone is continually adapting to the times, and so it will always be. The next big thing might still be something that further democratizes the media. Or it might be something that starts the pendulum back on the way towards the mean. We just don’t know until we see it, and all the microspeculation on the network effects of blogging, podcasting, and file sharing is simply a forest vs. trees issue. The bigger picture is this: we adapt. We will deal with it. And some entrepreneur will capitalize on it it, whatever it is.

If anyone told me 20 years ago that I would have a personal start page with 100 live headlines and quotes on 90 stocks, I would have rightly told them they were crazy. Who could keep up with that amount of data all day long? Well, it turns out I can. And I’m looking for more.

[...] I thought it would be helpful to demonstrate what I mean by an idea filter. I read a lot of bloggers, but only a handful consistently have ideas — it’s taken a while for me to figure out who they are. I’ve written before about Umair Haque, who is an idea machine. For now, I’d like to point to three other examples of bloggers with ideas and insight: [...]

i reveiwed some of the curves umair did. looks like he is an economics undergrad and learned about a few curves without really having the intellectual capacity to apply them righ at other spaces.

further, he leaves a few things out like ads being performace driven (CPO or CPA) and trackable.

there is/ will be a bubble, when people who dont get it, invest in shit. the shit will still attrackt eyballs, but not enough to finance venture capital inflated fix cost structures and mba sallaries. but there will still be enough fragmentations to create a lot of proffitabble mid-size players. there surely will be one or two new big players eveloving out of this place, too (facebook could make it, in my view, when the people there continue it to get it right… + they have to globalize faster).

[...] Scott has a good post on the question of media profusion that we are in the middle of, worth a read. This is the first time I have read his stuff, I like it. Another reason why I like Memeorandum.com [...]

[...] content creation is that, with so much competition (one might even call it a content creation bubble) and no control over distribution, content creation is no longer an easily scalable business [...]